Aspects of Foreign and Domestic Environment

The international marketer’s task is more complicated than that of the domestic marketer because the international marketer must deal with at least two levels of barriers instead of one. Uncertainty is created by the aspects of all business environments but each foreign country in which a company operates adds its own peculiar set of uncontrollable factors.

The total environment of an international marketer depicts the controllable elements that constitute a marketer’s decision area. Environmental elements at home that have some effect on foreign operation decisions. Each foreign market in which the company does business can (and usually does) present separate problems involving some or all of the uncontrollable elements. The more foreign markets in which a company operates, the greater is the possibility of foreign environmental factors with which to deal with. Frequently, a solution to a problem in a country market X is not applicable to a problem in country market Z.

In addition to uncontrollable domestic barriers, a significant source of uncertainty is the number of factors in foreign environment that are often uncontrollable. A business operating in its home country feels more comfortable in forecasting the business climate and adjusting business decisions to these elements.The process of analysing the uncontrollable elements in an international marketing program, however, it often involves substantial doses of cultural, political and economic shock.

A business operating in a number of foreign countries might find extremes in stability, structure and economic climate as important parameters in business decisions. The dynamic ups and downs in some countries further show the problems of change in cultural, political, and economic climates over relatively short periods of time. A case in point is China, which has moved from a communist legal system in which all business was done with the state to a transitional period while a commercial legal system is developing. In this transitional phase, new laws are passed but left to be interpreted by local authorities where confusion prevails as to what rules are to be followed and what rules are no longer applicable.

Now I come to the aspect of the domestic environment beyond the control of companies. These include home-country elements that can have a direct effect on the success of a foreign venture, political and legal forces, economic climate and competition.

A political decision involving domestic foreign policy can have a direct effect on a firm’s international marketing success. For example, the US government placed a total ban on trade with Libya to condemn Libyan support for terrorists’ attacks, imposed restrictions on trade with South Africa to protest apartheid, and placed a total ban on trade with Iraq whose actions constituted a threat to the national security of the US and its allies. In each case, the international marketing programs of the US companies were restricted by these political decisions. The US government has the constitutional right to restrict foreign trade when trade adversely affects the security of the country or some other aspects. Embargo can also be applied when trade is in conflict with that country’s foreign policy.

Positive effects occur when changes in foreign policy offer countries favoured treatment. Such were the cases when South Africa abolished apartheid and the embargo was lifted and when the US government decided to uncouple human rights issues from foreign trade policy and grant permanently normalized trade relations (PNTR) status to China, paving the way for entry into the World Trade Organization (WTO). In both cases opportunities were created for US companies. Finally, note that on several occasions companies can exercise some degree of influence over such legislation. The case of PNTR for China, companies with substantial interests there, such as Boeing and Motorola lobbied hard for the easing of trade restrictions.

The domestic economic climate is another important home based uncontrollable factor with far reaching effects on a company’s competitive position in foreign markets. The capacity to invest in plants and facilities either in domestic or foreign markets is to a large extent a function of domestic financial strength. It is generally true that capital tends to flow towards optimum use; however, capital must be generated before it can have mobility. Furthermore, if internal economic conditions deteriorate restrictions against foreign investment and purchasing may be imposed to strengthen the domestic economy. Competition within the home country can also have business repercussions on the international marketer’s task.